Doha: QNB has projected that the Chinese economy will remain resilient in the face of global trade shocks, noting that its growth outlook for this year remains relatively strong despite ongoing trade tensions.
According to Qatar News Agency, the bank, in its weekly report, attributed this resilience to the structural decline in reliance on exports directed to the United States, the limited effectiveness of tariffs in the context of global supply chains, and the competitive advantage arising from the depreciation of the renminbi. These combined factors help mitigate major external shocks to the Chinese economy.
The report pointed out that the Chinese economy began the year on a positive note, supported by improved private sector sentiment resulting from a mix of supportive economic policies, optimism surrounding the country's capabilities in artificial intelligence, and stable manufacturing activity. This came after years of declining investor appetite and volatile growth due to real estate crises, regulatory constraints, limited government stimulus, and the shock of strict lockdown measures during the COVID-19 pandemic.
These positive shifts and expectations contributed to enhancing economic activity and increasing growth forecasts since September 2024. However, the global economic outlook shifted abruptly last February after the US administration announced a significant increase in tariffs on imports, specifically targeting China with duties reaching 140 percent and significantly reducing exemptions. Following the start of bilateral negotiations, these tariffs were reduced to 40 percent, yet they remain relatively high.
Despite this major shock, the report pointed to three main factors supporting a positive outlook for China's ability to cope with US policies. First, the overall impact of US tariffs on China's economic growth is very limited, primarily due to the declining importance of the US as a major export destination, as well as China's strategic shift in trade flow destinations.
The report noted, when analyzing the second factor, that tariffs have become ineffective tools in a world characterized by fragmented global supply chains. China's central role in global production networks has greatly diminished the impact of these tariffs. Unlike traditional bilateral trade, modern goods cross multiple borders during assembly, making it difficult to isolate national added value.
The report added that multinational companies are quickly adapting to these changes by shifting final assembly stages to other countries while continuing to use Chinese inputs through re-shipping processes.
These alternative solutions are proving more effective than applying tariffs, reducing the impact of protectionist policies. A significant portion of China's exports, such as key components in electronics, machinery, and pharmaceuticals, are also difficult to replace and remain essential for American companies and the stability of global supply chains.
The report considered that, as a result, it is unlikely that tariffs will stimulate domestic reindustrialization, and China is expected to maintain its irreplaceable role in the global manufacturing sector.
The report also expected that the decline in the Chinese renminbi, especially in terms of its real effective value, would offset the impact of US tariffs. This decline enhances the global price competitiveness of Chinese exports. Since the escalation of the trade war last February, the renminbi has depreciated against the US dollar and even more significantly against a broader basket of currencies, leading to a sharp drop in the real effective exchange rate of the Chinese currency.
The report noted that this has reduced the relative cost of Chinese exports in markets that do not use the US dollar, enabling Chinese companies to increase their global market share despite the high American tariffs. Adjusting the real effective exchange rate functions as an automatic stabilizer for the Chinese economy.
The report also noted that the renminbi's exchange rate adjustment helps sustain or even increase external demand, ensuring a continued export surplus and further underscoring the limited effect of unilateral trade barriers.